00:00Another wild swing in Brent Crude today, up near 120 at one point, back down around 103.
00:05And I'm curious as to sort of how things shake out here, not so much as to where prices go
00:10next, Rebecca,
00:11but do you anticipate we could at least see maybe a little bit more stability in prices and a little
00:16bit less of these wild swings?
00:18So the short answer to that is not likely.
00:21And the reason I say that is because until we have an idea of when the Strait of Hormuz will
00:27be open,
00:27we will continue to have a loss of supply in the market.
00:31And until that timeline becomes clear or until we have a game plan where those 10 million barrels right now
00:38is estimated to not be able to hit the market,
00:41the volatility will continue.
00:44Secondarily, as the fighting and the conflict continues and energy infrastructure continues to be in play,
00:51it's going to be very hard for the markets to calm down.
00:54It just becomes a game of what is the next target and is the damage that's happening short term or
01:02long term?
01:02And what does that mean?
01:03So I honestly think we're in for more volatility.
01:07Well, let's talk about the potential damage, because, I mean, even if we do get some moderation in prices,
01:11I just, you know, anyone who has a Bloomberg terminal, you could run the GLCO function on your terminal.
01:15Year to date, we're up 60 plus percent on crude oil, on some of the refined products like gasoline,
01:20like heating oil, like jet fuel. We're talking about 80, 90, in some cases doubling that here.
01:25Even on things like coal, we're up pretty significantly here.
01:28We've already gotten reports here that some of the Asian nations, particularly in Southeast Asia,
01:32have already taken measures to try to control managed fuel consumption, and other nations are considering the same.
01:38Have we already sort of crossed the Rubicon where the potential economic damage, not necessarily to the U.S.,
01:43but at least to the rest of the world, might already be setting in?
01:47So I'm not sure we've crossed the Rubicon.
01:49I think we're seeing markets start to react very aggressively to protect and insulate themselves.
01:56But if this can be resolved, Romain, in, let's call it a week or two,
02:00and those flows can start kind of hitting the market again,
02:03I think we can walk this back and then economic scarring might not be as extreme as it looks today.
02:09So crossing the Rubicon to me is kind of two weeks to three weeks a month out from here
02:15when the scarring is just really embedded.
02:18And the thing about products that we don't have with crude oil is when we release an SPR,
02:24it's much more weighted to crude.
02:26We don't have as many reserve products in the fold that can be brought to the market as easily.
02:32Refining capacity has been constrained over a number of years,
02:35so there just aren't as many levers to pull there.
02:38And it is the fuel that really kind of moves the market or grows GDP.
02:44Crude oil is the input, but you need those refined products, as you're mentioning,
02:48to make the economy move.
02:49I do want to talk a little bit about the trading dynamics that we're seeing unfold.
02:54We were talking about this in the commercial break, that it feels like it's almost like deja vu.
02:59You come in, you see crude and Brent prices absolutely soaring,
03:04and then that move gets reversed throughout the U.S. trading day.
03:08And it seems to be consistent, Rebecca.
03:10So I wonder what you make of that and whether you would expect it to continue.
03:16So what I make of that is essentially when we're in the overnight session,
03:20that is when we see the kind of impacts of whatever attack is happening hit the headlines.
03:26That's the headline risk.
03:27Last night, it was the hit on the Qatari LNG facility and a refinery in Saudi Arabia.
03:34That refinery came back online during the day, during the U.S. session.
03:40And during the U.S. session, we also get the policy response from Israel and from the United States,
03:46which helps kind of soften the blow.
03:48And then we get talking about timeline and maybe a shortening timeline.
03:52So it's where the rhetoric is happening is during the U.S. session and where the action is happening in
03:59the Asian session.
04:00And I think that's why you're seeing those price offsets.
04:03Will it continue is a really interesting question.
04:06I think traders are on to this, and I would expect that margin to actually start to decrease
04:11because it's been a trend and traders don't let a trend go without trying to capitalize on it.
04:16So I don't know if we'll see such extreme divergence, but I do think it may continue to a lesser
04:23extent moving forward.
04:24Yeah, it's funny.
04:25Any opportunity to get in there and maybe it'll get flattened here.
04:29And it is a good reminder that, you know, we're talking about the most global asset.
04:34We're talking about oil.
04:35It matters for every single country.
04:37But I want to talk a little bit about another maybe divergence that we've seen on and off.
04:42That's what you're seeing with Brent versus what we're seeing with WTI, for example.
04:48It seems like the more dramatic move has been in Brent.
04:52Is that something that you would also expect to see continue?
04:55Or do you think the traders are going to come in and sort of zip that tighter?
04:59That one's a little bit different because the divergence between Brent and TI is a little bit more structural in
05:04the market, right?
05:05In WTI, we're actually seeing inventories build and cushion here.
05:09We are releasing a very crude, heavy SPR of around, let's hope, 1.4 million barrels a day, which is
05:18going to buffer kind of the upside in TI.
05:21Whereas in Brent, which is much more influenced by Asian demand, is going to be called on more heavily to
05:28fill some of that supply gap coming out of the Middle East.
05:32The bigger divergence is happening when we look at Middle Eastern spot markets.
05:37Dubai, Oman grades of crude are already trading at 150 barrels, dollars a barrel right now.
05:44So that's reflective of the true supply constraint that's happening in Asian markets.
05:50TI is insulated by geography and by policy.
05:53And I actually think we will see that continue to play out as more policy tools are potentially unrolled.
05:59Just one final question here, Rebecca, and this is more of a long-term question about whether we actually do
06:04see a potential restructuring of some of the energy infrastructure and, more importantly, the supply routes and supply options.
06:11Is this at an inflection point, this war and what we're seeing here and the disruptions that we start to
06:16see the Arab states and other countries start to think a little bit harder about that?
06:20It's a great question.
06:21I think it's an important question.
06:23I think, yes.
06:24I think that is going to be a bigger part of the conversation.
06:28But, again, if we think about it, it comes down to investment and money.
06:32And it's going to come down to can they realistically think about putting that investment in to secure their supplies?
06:38And is that the best use of their investment dollars?
06:42So we might be on the radar for the next six months, a year.
06:46But to see if it follows through, it's going to be kind of a longer-term play.
06:51I think what you do see in the short and medium term is this idea of continued restocking.
06:57We're going to see continued buying by China into their SPR.
07:00We're going to see all these Asian countries try to build up a buffer for these type of events.
07:05So if we don't see the infrastructure change, I think where you see it is in the inventory builds.
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